If you’re heading to university in September and are considering taking out your first credit card, make sure you know all the facts and are confident you can use it responsibly.
Gaining access to credit for the first time can be empowering and exciting, but given the repercussions that can ensue if you don’t use your card wisely, it isn’t a privilege that should be taken lightly.
When deciding whether or not to issue you a credit card, lenders will look at your credit history to assess your track record when it comes to borrowing money. If you don’t have a credit history, you might find it trickier to land a provider – although there are some who specialise in customers with limited experience of borrowing.
If you do find yourself rejected by your first choice, there’s nothing stopping you from applying with other lenders. However, one thing to be wary of is that making several applications for credit in a short period can leave a mark on your credit history and may mean you appear desperate to borrow, which could result in subsequent lenders being even less likely to approve you.
If you’re new to the credit card scene or are considering applying for one, take a look at these pros and cons to clue yourself up:
Credit card pros
Quick borrowing – Credit cards are a quick way to borrow money. If the end of term is approaching, your bank balance is low and you need to purchase something, a credit card will allow you to make the purchase there and then and pay the amount back once your next student loan or other income arrives. However, you should still only make purchases on your credit card if you are confident you will be able to repay it. It’s best to clear your credit card balance in full each month to avoid paying interest.
Protected – When you make online purchases with your credit card, you are protected by Section 75 of the Consumer Credit Act. Providing any single item or service you purchase costs between £100 and £30,000, if the company you bought it from goes bust or doesn’t deliver what it promised, Section 75 lets you claim for your refund through your credit card provider.
Credit card cons
Interest – Credit cards can be an expensive way to borrow. If you don’t clear your balance in full at the end of the month then you’ll be charged interest daily until you have paid off everything you owe. That’s why you should always try to pay off the full amount each month and only use your card as a means of short-term borrowing. If you’re only making the minimum repayment each month, you can soon rack up hefty interest costs.
Additional costs – You shouldn’t withdraw cash using a credit card – you’ll be charged interest from the date of the transaction and you may incur an extra charge too. Cash advances will also leave a mark on your credit history. You will also be charged if you are late, pay less than the monthly minimum or miss a repayment, so always make sure you’re confident of your ability to keep up with your repayment bills. Late payments have a negative impact on your credit rating, which can make it harder to borrow in the future.
Picking the card that’s right for you
As a student, a good first place to look for a credit card is your current account provider as they have your financial history to hand. Most of the main high street providers offer a card for students, as well as some specialist providers. Remember that you must be over 18 to access any sort of credit in the UK.
Bryony Pearce from Ocean Finance